Inside story | Tinkler and bastardry in business

Nathan Tinkler at the Supreme Court on Friday. He revealed his family trust had $600 million of debt. He claimed that was against assets of $1.4 billion but admitted many were illiquid and did not provide a valuation methodology. Photo: Sasha Woolley

Hannah Low and Jamie Freed

It was 7pm last September 24 – a Monday evening – and mining baron Nathan Tinkler was incensed.

“Gents,” he wrote in an email to a small group of executives at Hong Kong commodities trader Noble Group and little known Queensland coal explorer Blackwood Corporation, “this is just a complete act of bastardry”. “Disappointed in all of you, particularly those I have known [f]or a long time. Enjoy the headlines you have created tomorrow, I am sure reading them, you will all feel vindicated.”

Tinkler had good reason to be irate. He found out only hours earlier that Blackwood – whose major shareholder is Noble – was moving to wind up one of his private companies over a bungled share placement agreement. The agreement itself was worth about $28 million – a mere drop in the ocean for Tinkler and his vast array of coal assets.

Yet the wind up had the potential to shatter Tinkler’s precarious finances. Not only did it threaten to erode the tenuous financial links holding his myriad of companies together, but the subsequent legal action in the NSW Supreme Court this week to understand why Mulsanne Resources never paid the bill also means his closely-held business dealings are the subject of public scrutiny.

Walking a precarious tightrope

Tinkler’s financial difficulties have been well documented. In the past year, he has sold off everything from champion thoroughbreds to country property and has lost possession of his private jet. Football players were worried about not being paid and creditors have taken legal action. The future of his largest asset, a 19.4 per cent stake in Whitehaven Coal, is the subject of almost daily scrutiny.

Tinkler’s business dealings have often been likened to a house of cards. In his last interview with The Australian Financial Review in October, he responded that it was nobody’s else’s business.

It is entirely possible the battle over Blackwood – a tiny Brisbane company with a market value of less than $25 million – could be the matter that finally brings the endless speculation to a head.

Nathan Leslie Tinkler has always played it hard and fast, pulling off deal after deal in a remarkable career.

The 37-year-old former electrician may have walked a precarious tightrope. But in a market where coal was a hotly sought-after commodity, he somehow always managed to come out on top.

The entrepreneur was raised in the small country town of Inverell in northern NSW and later proved his industry stripes working on mine sites in the Hunter Valley.

It was humble beginnings. But as Tinkler’s wealth ballooned – by 2011 he was BRW’s richest man under 40 with an estimated wealth of $1.13 billion – he began to accumulate football clubs, racehorses, flashy cars, a private jet and helicopter and a beach house in Maui. He lived on the edge and was known in the market for his potty mouth, carefree nature and knocking together finance for multimillion-dollar deals at the 11th hour. Somehow he always managed to scrape through.

The Blackwood saga

Then Blackwood happened.

The genesis of his public examination this week began in December 2011 when Tinkler had a Christmas drink with Will Randall, head of hard commodities at Noble. The two men had known each other for five years and frequently did business together.

Tinkler told the court this week that Randall mentioned that Blackwood – majority owned by Noble – was looking for extra capital. Tinkler said he was interested, and the pair discussed an arrangement in which Tinkler would fund a share placement by selling a coal royalty of a similar value to Noble. The mining entrepreneur flew to Perth the following month to meet the Blackwood board for lunch. By April, he had lawyers briefed and a deal drafted. The agreement to place shares with Tinkler was signed on May 6, 2012. The deal meant the former tradesman received a one-third stake in Blackwood alongside Noble. It needed to be approved by shareholders at a meeting to take place in July. Given Noble was Blackwood’s largest shareholder and he had a long relationship with the Hong Kong group, Tinkler was confident the outcome would be positive, although he wryly noted on Thursday: “I don’t take anything for granted in the Australian market.”

But there were other uncertainties. Tinkler had months to cement financing. Yet, as with many of his other lucrative deals, nothing was set in stone.

This appears to have been a pressing concern for Matthew Keen, Tinkler’s in-house adviser and a board member of a critical private Tinkler investment company, Mulsanne. Nevertheless, Tinkler was blase – after all, he had done last-minute financing deals plenty of times before.

In November 2006, Tinkler scraped together $1 million for a deposit on the Middlemount coalfield in central Queensland. The remaining $7.5 million was due 30 weeks later – plus the cost of drilling to prove the coal reserves. Broking firm Martin Place Securities invested $6 million to cover development costs. Then in April 2007, Noble agreed to buy into the project for $49 million. The timing was tight. The final $7.5 million due on Middlemount was paid to the vendor at 8pm on the final day.

Three years later, Tinkler went down to the wire to obtain high-cost financing from investment bank Credit Suisse and Raymond Zage, the Singapore-based managing director of hedge fund Noonday Asset Management. The aim was to fund a $480 million purchase of the Maules Creek project in the Gunnedah Basin he had agreed to buy from Rio Tinto. Tinkler then floated the asset, with backing from Noble, as Aston Resources in 2010. By last May, he had sold it to Whitehaven in return for scrip.

By the time Tinkler agreed the Blackwood placement the same month, the coal market was hot. Annual thermal coal contracts with Japanese buyers had settled at a healthy $US115 a tonne and his Whitehaven stake was worth more than $1 billion.

High hopes for Blackwood dashed

It turns out Tinkler had big plans for Blackwood. Ever the entrepreneur, the court heard this week he wanted Noble to turn the tiddler into a major coal producer.

Both parties were considering a $400 million purchase from Brazilian mining giant Vale – understood to be the Integra coalmine in NSW, backed by hedge fund Och-Ziff. A potential merger between Blackwood and Guildford Coal was also being discussed, as was a move on Endocoal.

Tinkler and Zage – a key financier of his loan over Whitehaven – are veterans in stumping up finance at one minute to midnight. Zage, who is described as the “king of the leveraged buyout”, has stood by Tinkler so far. But the low-profile trader has a reputation for ruthless deal-making. It is Noonday that is now calling the shots behind the scenes.

In happier times...Nathan and Rebecca Tinkler with John Singleton at the 2010 Magic Millions thoroughbred sales.

In the past, Tinkler has been able to cobble enough money together quickly by flipping and refinancing assets. But a downturn in coal markets last year made this practice more difficult. Even Zage was getting cold feet.

Indeed, it has emerged Tinkler went to Noonday last year to help finance the Blackwood proposal as commodity markets began to wobble. He was rebuffed. “They had a lot on at the time and were cautious on the coal market,” he said. “They said they couldn’t look at it at the time.”

Emails tendered in court this week show three hours after being told Blackwood would attempt to wind up his private company, Mulsanne, Tinkler emailed Zage to keep him in the loop.

“You [k]new to [b]e aware of the below it is going [to] be more good press for me,” he wrote. “I have met with Will several times over the last few weeks to extend timing and have been assured it is fine but they have gone ahead and done this.” He told Zage he had “ground for defence” but Blackwood “have chosen to be dramatic regardless”.

It is easy to see why the deal had gone off the rails. By June, with the spot price of thermal coal down to $US84 a tonne, the value of Tinkler’s stake in Whitehaven had fallen to $750 million.

But Tinkler thought the market weakness was an opportunity rather than a threat.

“We were of the view [the coal market] would bounce back by the end of the year,” he recalled this week.

Tinkler ‘hung out to dry’

It was typical Tinkler, bullish, brash and risky. There are few other entrepreneurs in the world – let alone Australia – who would have begun plotting a $5.25 billion bid for Whitehaven in these circumstances.

But as the coal market remained in the doldrums, lenders became nervous about whether future cash flows from assets such as Whitehaven’s mines would be high enough to repay debt. Noble ran into financial difficulties of its own. None of the deals Tinkler and Noble had discussed involving Blackwood eventuated.

Tinkler was hit harder than most by the coal market collapse because he had embarked on risky ventures and mortgaged himself to the hilt. It was not long before things started going pear-shaped.

The Blackwood share purchase agreement was due to be completed on July 19. But as the deadline drew closer, Tinkler had still not found anyone prepared to stump up the money. He had finally run out of luck. There would not be a last-minute backer this time. Indeed, it seems even his long-term allies were having second thoughts.

Nathan Tinkler spent heavily on horses, buying hundreds for his Patinack Farm stud. In 2012 he sold many at knock-down prices as part of desperate efforts to raise cash.

Photo Louie Douvis

Tinkler told the court this week Noble was interested in buying a royalty that covered $1 per tonne of coal production from the Middlemount mine in Queensland, of which Tinkler held a 75 per cent interest. Randall and Tinkler came to a verbal “arrangement”, which Tinkler conceded was not legally binding. But Tinkler told the court he “trusted that relationship”, adding he “believed I had a sale to Noble”.

He may have been right. But there was another party involved – Tinkler’s former business partner, Matthew Higgins. And as times got tougher, it looked increasingly unlikely that Noble would move on the deal.

“I quickly worked out I had been hung out to dry,” Tinkler said.

Tinkler’s Lax approach comes under fire

Tinkler this week came under fire from the liquidator’s lawyers for his lax approach on finance as well as a lack of diary notes, emails and other documentation to prove he was in fact having serious discussions with financiers. Tinkler said that his robust relationship with Randall meant he didn’t need to take a page of notes for a 15-minute conversation. But his failure to ask for a letter of comfort from Noble or ensure appropriate legal documentation was in place suggests a certain complacency. And this was not the only behaviour observers in court this week have privately questioned.

Hours before the Blackwood deal was due to be completed, Tinkler went off the grid. No one could get hold of him – not even his lawyers. The board of Blackwood were not impressed. But in the evening, Tinkler sent a casual email to the Blackwood board.

“Gents,” he wrote. “How are you? Busy on a few things at the moment and placement is on my mind I just haven’t had a chance to speak to will yet. Suggest we call off the dogs,” he wrote, referring to the lawyers, and told the board “this is a long-term relationship and that view needs to be taken here”.

Even when the Noble royalties deal fell apart Tinkler was confident “several things I was working on” would fall into place.

He had done the rounds with a number of bankers in April and May before the deal was finalised, including UBS, Credit Suisse and Bank of America Merrill Lynch. He had offered three residential properties worth more than $15 million as security for a loan to complete the placement. But none of the financiers had taken the bait.

Tinkler approached venture capitalist Mark Carnegie, but like other efforts to raise money this was unsuccessful.

Photo Simon Alekna

backers lose faith

Even after the completion date had passed and Blackwood was becoming agitated, Tinkler was still not panicky.

He went to potential backers again, asking Credit Suisse, Noonday, EIG Global Energy Partners and Jefferies, as well as other longstanding supporters of the Tinkler Group, to keep Mulsanne from going bust last spring. Venture capitalist Mark Carnegie was also approached.

Tinkler worked the potential backers hard. Emails show he tried to convince Credit Suisse’s Singaporean team to back the share placement around the same time, even as the bank expressed concerns about negative press coverage over his mounting debts.

“This is an exploration company which is in feasibility stage,” Tinkler wrote. “A lot of corporate activity can be bought to play here. I hope you can be involved, [it] will be very lucrative for CS.”

Once again, nobody was prepared to put their name to the deal. Behind the scenes, Noble was growing increasingly impatient. In an email to Blackwood chairman Barry Bolitho in September, Randall said he and Tinkler had just “met at kids rugby this morning” (both men lived in Singapore). Tinkler told him he wanted to be involved in Blackwood. “In my short and humble opinion,” Mr Randall wrote, “no solution will be forthcoming until full legal due process is fully exhausted”.

“Trying to keep it polite,” Randall said, but “he [Tinkler] has no solution and talk is cheap. Sorry team.” Bolitho replied a couple of hours later, saying: “thanks for this Will. We can only try . . .” It was only days after Randall’s blunt email that Blackwood moved to wind up Mulsanne. The coal magnate was livid, and fired off his “complete act of bastardry” email. “What was to be lost by giving me 30 days to announce another deal I am working on and this would fall into place?” he asked. “Now for the first time, this placement is in jeopardy. Thanks for making things even more difficult at what is already a difficult time.”

But the board were not perturbed. One commented that, “we have finally got his attention. It is our turn not to respond.” Randall himself wrote, “emotion has no room in business and please let it go thru to keeper. Not worth it.”

It has also emerged through court documents that Tinkler’s taxable income for the 2011 financial year was a mere $9834 – all of it from interest payments from bank accounts.

Market sources have suggested his creditors could seek to take control of the Whitehaven stake if they fear the shares could be handed over to liquidators. But by now, many think that isn’t a bad idea.

Tinkler has been partly responsible a large level of instability at Whitehaven over the past year. First, he failed to obtain financing for a $5.25 billion takeover proposal for Whitehaven shortly after he had signed the Blackwood deal. And then, in November, he lost a very public attempt to spill the board. At the same time, the company has also struggled on an operational basis.

CIMB analyst James Stewart said he thought Whitehaven shares could rise 15 per cent in the space of a day or two if Tinkler’s lenders took control of his shares. “I think it would be a fantastic result,” he said.

The innermost workings of the controversial entrepreneur have been under an intense spotlight this week. Tinkler has spent the past year in hiding; he moved to Singapore to escape the glare of the Australian media and authorities. But he was dragged home this week after the NSW Supreme Court threatened to have him arrested.

He has always managed to stump up the cash at the last minute in the past. But not this time.

The big question on everyone’s lips is, will he survive his unwanted moment in the limelight?